Wholesale Prices Move Up 0.1 Percent Last Month

CHRISTOPHER S. RUGABER | AP Economics Writer

WASHINGTON (AP) – Wholesale prices moved up slightly last month, held back by cheaper energy and food costs. The modest increase signals that inflation is largely in check.

The producer price index, which tracks price changes before they reach the consumer, rose 0.1 percent, the Labor Department said Thursday. Wholesale prices fell by the same amount in December. In the past 12 months, they have increased 4.1 percent, the smallest rise in a year.

Excluding the volatile food and energy categories, so-called "core" prices increased 0.4 percent, the most in six months.

Economists said most of the increases were likely temporary and unlikely to continue driving the core higher.

Wholesale gas prices rose, but were offset by steep drops in home heating oil, natural gas, and electricity, which fell by the most in more than seven years.

Pharmaceutical costs drove much of the increase in the core. Household appliance prices rose by the most in three decades.

Jeremy Lawson, senior economist at BNP Paribas, said the increase in the core isn't broad-based and was likely temporary.

The increase in appliance prices likely reflects the end of holiday season discounts, he said.

Modest increases in wholesale inflation reduce the pressure on manufacturers and retailers to raise prices for consumers. That helps keep consumer prices in check. It also helps manufacturers maintain their profit margins.

Low inflation makes it easier for the Federal Reserve to keep the short-term interest rate it controls at a record-low level of nearly zero. If there were signs that inflation was increasing rapidly, the Fed would likely raise rates.

The central bank is forecasting that consumer price inflation will remain in check this year. It expects that the inflation gauge it follows will increase by about 1.6 percent in 2012. That's below the Fed's target for inflation of 2 percent.

Fed Chairman Ben Bernanke announced that target, the first ever for the central bank, last month.

A small amount of inflation can be good for the economy. It encourages businesses and consumers to spend and invest money sooner rather than later, before inflation erodes its value.

Lower price growth also leaves more money in consumers' pockets, boosting their buying power. That would support more economic growth. The jump in gas and food prices early last year limited the ability of consumers to buy other goods, slowing the economy.

Some economists worry that rising gas prices could act in a similar way again, dragging on growth. If turmoil worsened in the Middle East, for example, that could push oil and gas prices much higher.

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